Frequently asked questions
What are the types of mutual fund distributions and how are they taxed?
See below for further information on dividends, short-term capital gains, and long-term capital gains. A fund receives ordinary income generally in the form of dividends and interest on its investments in portfolio securities, which may be paid to you.
Two types of income dividends can generally be paid out:
- Ordinary dividends, which are taxed at an investor's ordinary income tax rate.
- Qualified dividends, which are taxed at rates listed below (provided the investor has met the minimum holding period requirements)1:
Qualified dividend taxation rate for 20232
| Taxable income | Qualified dividends taxation rate |
|
| Single | Married/filing jointly | |
| $0–$44,625 | $0–$89,250 | 0% |
| $44,626–$492,300 | $89,251–$553,850 |
15% |
| Over $492,300 | Over $553,850 | 20% |
1Must have held shares in the fund for at least 61 days during the 121-day period beginning 60 days before the date on which such shares become ex-dividend to be entitled to the reduced rates of taxation on qualified dividends.
2An additional 3.8% Medicare tax may be imposed on certain net investment income (including dividends and capital gain distributions received from a mutual fund) to the extent the recipient’s gross income exceeds a threshold amount.
How are taxable mutual fund distributions reported?
Mutual fund distributions are reported on IRS Form 1099-DIV.
What is meant by the record date for a distribution?
This is the date that is used to determine who is eligible to receive a distribution issued by the fund. Shareholders holding shares on the record date are eligible to receive the distribution. Shareholders who purchased their shares after the record date or sold their shares before the record date, will not receive the distribution.
What is meant by the ex-date for a distribution?
This is the date that the distribution of dividends or capital gains is deducted from a mutual fund's net asset value and set aside for payment to shareholders.
What is a capital gain?
Profits resulting from the sale of securities are considered capital gains if such securities are held as capital assets. An investor may realize capital gains when they sell shares, when the fund sells securities, or when both occur.
A fund may derive capital gain or loss in connection with sales or other dispositions of portfolio securities. Distributions paid from net short-term capital gains are taxable to shareholders as ordinary income and distributions paid from long-term capital gains are taxable as long-term capital gains.
If the fund sells securities and realizes capital gains, such gains are passed to the shareholders as distributions. IRS Form 1099-DIV is used to report these amounts.
When you sell or exchange mutual fund shares, you may realize a short- or long-term taxable capital gain or a capital loss. IRS Form 1099-B is used to report these amounts.
Remember that under federal tax law, shares held for more than one year receive long-term capital gain/loss status. Gain or loss on shares that are held for one year or less are treated as a short-term capital gain or loss subject to special rules if the fund makes distributions of long-term capital gains while the investor held shares.
What is cost basis?
To determine whether you have a capital gain or loss on shares you sold or exchanged, you must establish your cost basis. Cost basis generally is the price you paid for your shares, including any sales charges. Your cost basis may not be the same for all shares because the price may have varied if you made purchases at different times. Shares you acquired through reinvested dividends or capital gains are considered separate purchases and should be included in your calculations. The difference between your cost basis and the amount you received when you sold or redeemed your shares represents your gain or loss. In this way, your cost basis may help you determine how much you owe in taxes or can claim as a loss. Please contact your broker (or other nominee) with respect to reporting of cost basis and available elections for your account.
Do I still pay taxes on capital gains even if I have them reinvested?
Capital gains on shares held in an IRA, 401(k), or any other tax-advantaged investment are not taxed. All other capital gain distributions are taxable, even when reinvested.
What is considered a long/short-term capital gain as it relates to my mutual fund?
Short-term capital gains occur when there are gains from the sale of securities that are held for one year or less. For federal tax purposes, these gains are taxed as ordinary income. Short-term gains are taxed as ordinary income at your marginal tax rate ranging from 10% to 37% under federal income tax rules. An additional 3.8% Medicare tax may be imposed on certain net investment income (including dividends and capital gain distributions received from a mutual fund and net gains from redemptions or other taxable dispositions of mutual fund shares) to the extent the recipient’s gross income exceeds a threshold amount.
Long-term capital gains occur when there are gains from the sale of securities that are held for more than 12 months. Long-term capital gains from sales will be taxed at 0%, 15%, or 20% for taxable accounts. An additional 3.8% Medicare tax may be imposed on certain net investment income (including dividends and capital gain distributions received from a mutual fund and net gains from redemptions or other taxable dispositions of mutual fund shares) to the extent the recipient’s gross income exceeds a threshold amount.
Why do I have a capital gain distribution when my fund value is down?
The fund may have realized a capital gain from selling securities within the portfolio of the fund, which is distributed to shareholders even though the overall value of the fund may be down.
What if I have additional questions?
If you have additional questions that we were unable to answer here, or have questions relating specifically to your tax situation, please contact your tax advisor.
The information contained in this section is not intended to be legal or tax advice. If you need assistance preparing your tax return, please consult a tax advisor.
Information may be abridged and therefore incomplete. Any discussion pertaining to taxes in this communication (including attachments) may be part of the promotion or marketing of a product. Advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus, which may be obtained by visiting optimummutualfunds.com/literature or calling 800 914-0278. Investors should read the prospectus and, if available, the summary prospectus carefully before investing.
Investing involves risk, including loss of principal.